Firms circumvent Inmarsat lock-up

Apax Partners and Permira have sold a further stake in UK-listed satellite operator Inmarsat less than a week after the business was floated on June 17 at the top of its range.

The two buyout firms had agreed to lock-in their stakes for at least six months following the IPO. However, since the 150m-share offer was heavily oversubscribed and floated at 245p, an agreed over-allotment scheme came into effect.

A further 15m shares worth £36.75m were sold as a result through bookrunners JP Morgan Cazenove, Morgan Stanley, Lehman Brothers and Merrill Lynch. The total size of the offer increased to £404.25m, representing 36% of Inmarsat. That valued the satellite operator at just under £1.2bn, and made the deal the largest IPO on the London Stock Exchange this year.

Inmarsat was also boosted on June 20 with news that it was forming a consortium to bid for the Galileo satellite navigation system contract, which is worth £2.2bn. It bid for the contract two years ago alongside Thales and EADS, but against the rival Eurely consortium of Alcatel, Finmeccanica, Aena and Hispasat. The two groups will now work together, prompting a 1.25% rise in Inmarsat’s share price to 283.5p.

The initial £368m IPO sale was priced amid very strong demand on June 17. Inmarsat provided more of a challenge for investors than recent solid defensives, such as Belgian utility Elia, that have dominated the market in the last few weeks, however.

Bankers said the Inmarsat deal required an extensive marketing and investor education process. They highlighted the fact that it was the first time a satellite company had listed in London, so the sector was new ground for many portfolio managers.

Momentum built steadily through the book-build, but it was in the last few days that it took off to an extraordinary degree. With talk in the market that the deal was well covered at the top of the range with several days to go, investors who had waited on the sidelines began to put in orders or increased indications already given.

The result was that the books were 10 times covered when the deal closed on Thursday June 16, resulting in a tough allocation job for the bookrunners. The deal included 150m primary shares priced at the top of the 215p–245p range, for a 33% free float. The stock closed its first day of trading up 17.6% at 288p. The cash raised will pay down debt.

The stock provided a mixture of defensive and growth characteristics that chimed with investors’ demands in the current environment. The yield at the IPO price was 5.7%, from a range that had stretched as high as 6.5%. On a 2005 P/E basis, the IPO puts the company on a multiple of 9.5, while comparables SES Global and PanAmSat trade at 9.3 and 8.6, respectively.

Growth is conservatively forecast at around 6% per year, though some estimates go up to 10%.